Published By Janet Gershen-Siegel at March 19th, 2018
You have to recognize what affects your small business credit before you can make it better.
This is in essence how long your company has been using company credit. Certainly newer companies will have very short credit histories. Though there is not a lot you can specifically do about that, do not panic. Credit reporting bureaus will also inspect your personal credit score and your own record of payments. If your personal credit is excellent, and in particular if you have a relatively extensive credit history, then your consumer credit can come to the rescue of your company. That is, you did not just get your first credit card a short time ago.
Obviously, the opposite is also right. So, if your consumer credit history is poor, then it will have an effect on your company credit scores until your small business and consumer credit can be split.
Overdue repayments will influence your company credit score for a good seven years. Make sure to pay your company (and personal) debts off, as rapidly as possible and as completely as possible. So, then you can make a very real difference when it concerns your credit scores. See to it to pay on schedule and you will reap the benefits of promptness.
Are you having a bad business year? Then it could end up on your personal credit score. And in the event your small business has not been in existence for too long, guess what happens? It will directly affect your company credit.
Having said that, you can unlink them both by taking steps to do so. As an example, if you get credit cards only for your business. Or you can open up business checking accounts and various other bank accounts (or perhaps get a business loan). So, then the credit reporting bureaus will start to address your consumer and company credit separately.
Also, make sure to incorporate, or at the very least file a DBA (doing business as) status. You can also pay for your company’s bills with your small business credit card or checking account. And make sure it is the business’s full name on the bill and not yours.
Just the same as each and every company around, credit reporting agencies just like Equifax and Experian are only as good as their information. If your company’s name is similar to another’s, or your name is a lot like another business owner’s, there can possibly be some mistakes.
So, monitor those reports, and your business report at Dun & Bradstreet, PAYDEX. Remain on top of these reports and question charges with documentation and clear communications. Do not just let them stay incorrect! You can fix this!
And while you’re at, it you should also be overseeing the credit reporting bureau which only handles personal and not company credit. And that is TransUnion. If you do not know the way to pull a credit report, do not stress. It is easy. Just Google to find the links to the CRAs.
Company credit is credit in a business’s name. It doesn’t attach to an owner’s personal credit, not even if the owner is a sole proprietor and the sole employee of the small business.
Consequently, a business owner’s business and consumer credit scores can be very different.
Since business credit is separate from personal, it helps to secure a small business owner’s personal assets, in case of court action or business bankruptcy.
Also, with two distinct credit scores, an entrepreneur can get two separate cards from the same vendor. This effectively doubles buying power.
Another advantage is that even startup businesses can do this. Going to a bank for a business loan can be a recipe for disappointment. But building company credit, when done correctly, is a plan for success.
Consumer credit scores are dependent on payments but also other factors like credit usage percentages.
But for small business credit, the scores really merely hinge on whether a company pays its debts promptly.
Building business credit is a process, and it does not happen without effort. A small business will need to proactively work to establish company credit.
That being said, it can be done readily and quickly, and it is much more rapid than establishing personal credit scores.
Vendors are a big aspect of this process.
Undertaking the steps out of order will result in repetitive denials. Nobody can start at the top with business credit.
A company needs to be Fundable to credit issuers and vendors.
Hence, a business will need a professional-looking web site and email address. And it needs to have website hosting bought from a vendor like GoDaddy.
And, company phone numbers should have a listing on ListYourself.net.
Likewise, the business phone number should be toll-free (800 exchange or the like).
A company will also need a bank account devoted solely to it, and it must have all of the licenses necessary for running.
These licenses all have to be in the perfect, accurate name of the business. And they need to have the same company address and phone numbers.
So, note, that this means not just state licenses, but potentially also city licenses.
Visit the Internal Revenue Service web site and get an EIN for the business. They’re free. Pick a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor. But they should change to a sort of corporation or LLC.
This is in order to minimize risk. And it will optimize tax benefits.
A business entity will matter when it involves taxes and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and taxes. No one else is responsible.
Start at the D&B web site and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a small business in their system, to generate a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s websites for the small business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.
In this way, Experian and Equifax will have activity to report on.
First you should establish trade lines that report. This is also called vendor credit. Then you’ll have an established credit profile, and you’ll get a business credit score.
And with an established business credit profile and score you can begin getting more credit.
These types of accounts often tend to be for the things bought all the time, like shipping boxes, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are normally Net 30, instead of revolving.
So, if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts have to be paid completely within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To kick off your business credit profile properly, you ought to get approval for vendor accounts that report to the business credit reporting agencies. As soon as that’s done, you can then use the credit.
Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 3 of these to move onto the next step.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at the very least one of the CRAs, a trade account which does not report can also be of some worth.
You can always ask non-reporting accounts for trade references. And also, credit accounts of any sort will help you to better even out business expenditures, consequently making financial planning simpler. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Know what is happening with your credit. Make sure it is being reported and address any mistakes ASAP. Get in the practice of taking a look at credit reports. Dig into the particulars, not just the scores.
We can help you monitor business credit at Experian, Equifax, and D&B for 90% less.
Update the information if there are inaccuracies or the relevant information is incomplete
So, what’s all this monitoring for? It’s to contest any mistakes in your records. Errors in your credit report(s) can be corrected. But the CRAs normally want you to dispute in a particular way.
Disputing credit report mistakes usually means you precisely itemize any charges you contest.
Always use credit sensibly! Don’t borrow more than what you can pay off. Keep an eye on balances and deadlines for payments. Paying on time and fully will do more to increase business credit scores than virtually anything else.
Growing company credit pays. Excellent business credit scores help a company get loans. Your lender knows the small business can pay its debts. They understand the company is bona fide.
The company’s EIN attaches to high scores and credit issuers won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your small business for years to come.
Once you learn what impacts your business credit scores, you are that much closer to building enhanced business credit. Learn more here and get started in understanding credit and business finance decoded.